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Copart, Inc.  (NASDAQ:CPRT)
Q1 2019 Earnings Conference Call
Nov. 21, 2018, 11:18 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to the Copart Incorporated First Quarter Fiscal 2019 Earnings Call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.

A. Jayson Adair -- Chief Executive Officer

Thank you, Chantelle. Good morning, everyone and welcome to the first quarter conference call for Copart fiscal 2019. It's my pleasure at this point to turn it over to Jeff, who will go through the financials. We will then come back to Will, who will give you an update on US, International and then I will give you an update on what is happening in Germany since there's a lot of changes going on there and pass that to Jeff as well. So with that, I'll turn it over to Jeff.

Jeffery Liaw -- Chief Financial Officer

Thanks, Jay. I'll start today's call with the Safe Harbor. During today's call, we'll discuss certain non-GAAP measures including non-GAAP net income per diluted share, which includes adjustments to reverse the effect of disposals of non-operating assets, foreign currency related gains and losses, and certain income tax benefits related to accounting for stock option exercises. We've provided the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday. We believe the presentation of these non-GAAP measures together with our corresponding GAAP measures is relevant in assessing Copart's business trends and financial performance. We analyze our results on both a GAAP and non-GAAP basis described above.

In addition, this call contains forward-looking statements within the meaning of federal securities laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments. For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis portions in our related periodic reports filed with the SEC. We do not undertake to update any forward-looking statements that may be made from time to time on our behalf.

Turning our attention first to the first quarter of fiscal 2019, we achieved a record first quarter in unit sales revenue, gross profit, and operating income. The period presents a somewhat noisy comparison in comparison to the first quarter of last year given the events of Hurricane Harvey last year and Florence and Michael this year. We'll provide metrics during this call with and without those events to provide you a cleaner comparison. Starting at the top line, our global (ph) revenue grew 10.1% year-over-year. Excluding those three hurricanes I just mentioned, revenue would have been 15.1% instead. We were burdened by an unfavorable year-over-year currency effect on revenue of $0.3 million on foreign operations primarily due to the relative strength of the US dollar in comparison to the pound and the Brazilian real. Our global service revenue grew (ph) 5.5%. Again, excluding those three hurricanes, global service revenue would have grown at 11% instead. Purchase (ph) (technical difficulty) was 48%, split approximately equally between US and internationally in terms of the absolute growth. The growth in US was driven by a mix of things including NPA and CoCorrect (ph).

Internationally, our growth was driven by the (technical difficulty). As you know from following Copart, our actual Copart owned inventory is still relatively modest with $19.7 million (ph) at quarter-end, small in the context of our overall business since (technical difficulty) is reflected in the gross value while (technical difficulty) revenue reflects only the net. Our global unit sales grew 4.1% year-over-year with US unit growth of 2.4% and international unit growth of 14.3% (ph). Excluding those three hurricanes, our global unit sales growth would have been 5.6% with US growth at 4.2% and the international growth, of course, unchanged. Our nominal global inventory decreased year-over-year at 1.5%, but excluding those three hurricanes, our global inventory was up 10% year-over-year in comparing the October ending balance versus the October ending balance of a year ago.

Turning to our gross profit. Gross profit grew from $163.3 million a year ago to $195.9 million this year or 20% growth. As you may recall, the first quarter of '18 was burdened by Hurricane Harvey, which represented a net drag on the quarter of $17.2 million of the gross profit line. The first quarter of '19 is likewise burdened by expenses related to Hurricane's Florence and Michael which collectively represented $4 million of gross profit loss in the quarter. We have not treated this event as I quote, extraordinary event. We believe that storm readiness and response is an essential service that we provide to our customers and although catastrophic events tend to be unprofitable for Copart and in the case of major storms like these, substantially so, we believe our commitment to exceptional service in these events distinguishes Copart from the competition.

Excluding these three events from gross profit in both periods would have yielded gross profit growth of 11% or meaningful leverage on our unit growth of 5.6%. Our gross margin rate increased from 39% to 42.5% for an increase of 350 basis points. That, of course, includes the burden of Hurricane Harvey a year ago as well as Florence and Michael this year. Excluding all three of those events, gross margin rate would have declined slightly, approximately 180 basis points with a strong majority of that decline attributable to the mix shift in purchased cars. On ASPs, I'll provide just a quick headline with Will to provide much more color thereafter. Our ASPs grew 13.1% in the US despite lapping a strong ASP growth quarter a year ago in the first quarter of '18 of also 13% or thereabouts.

Turning to our general and administrative expenses ex-stock compensation and depreciation grew from $29.5 million a year ago to $34.8 million. US growth in this respect of $3.8 million largely related to costs associated with supporting our growth initiatives as well as certain litigation costs and a $1.5 million increase internationally is largely related to the expansion of our European business. As we have repeatedly said, our general and administrative expenses will grow over time with inflation and complexity, but we continue to believe we can achieve operating leverage over time given strong top line growth. Our GAAP operating income grew from a $123.9 million to $151.4 million or growth of 22%. Excluding the hurricanes, operating income would have grown an approximate 10% year-over-year. Our net interest expense was down due to a lower net debt balance. Our first quarter income tax rate of 23.3% is a reflection of the lower US federal tax rate you heard us talk about on prior calls. We are now at a 21% US federal tax rate for the full fiscal year '19.

Our GAAP net income increased from $77.5 million a year ago to $114.1 million this year or growth of 47% year-over-year. As I'm sure you recall, we experienced a somewhat complex quarter in the fourth quarter. The first quarter is relatively straightforward in comparison with very limited non-GAAP adjustments to net income and therefore the net income of $77.1 million a year ago in comparison to $113.6 million this year is similar with growth of 47% year-over-year.

One last topic, turning our attention to the balance sheet and cash flow statement, I'll pause here to talk about revenue recognition 606 or the Rev 606 new accounting standard. This is the first quarter in which we've implemented those new revenue recognition principles, which reflects largely a reversion to how Copart previously accounted for its revenue, prior to the implementation of Rev 605 in fiscal 2011. So under the new accounting standard, to oversimplify, we will largely recognize revenue in connection with a particular vehicle at the time of its auction, including for example services we provide with respect to inbound towing, entitled processing. The one-time cumulative adjustment to retained earnings is a reduction of $23 million. Certain revenue and corresponding costs that had been recognized in Q4 and previously under the prior accounting standards are now recognized in Q1 and beyond while revenue and corresponding costs that previously would have been recognized in Q1 are instead deferred to Q2 and beyond. The long and short of it is that the net effect on our P&L in Q1 was not material in terms of either revenue or our profit metrics. The new revenue recognition standards also affect our balance sheet in non-cash ways. For example, because we will not recognize revenue as earned until the time of auction as a general matter, certain of our accounts receivables that we would previously have booked in Q1 will now instead be booked in Q2. So on our balance sheet, you'll see the AR balance will nominally reflect a decrease of $60 million (ph), but the change in cash from the cash flow statement on accounts receivable of $29.3 million is a more accurate reflection of like-for-like AR (ph) growth year-over-year. The same logic applies to vehicle pooling costs, we will now defer more of our costs into Q2 and have quoted (ph) deferred costs from Q4 that we've now recognized in Q1 in subsequent periods. As a result, VPC growth on our balance sheet of $39 million significantly outpaces like-for-like VPC growth of $13.6 million as reflected in our cash flow statement.

On cash flow itself, we generated operating cash flow for the quarter of $107.7 million with CapEx of $62 million and change, a little over half, call (ph) it 55% of our CapEx was attributable to capacity expansion and lease buyouts with the balance attributable to yard equipment, IT and other. And with that, I'll turn it over to Will for more color on the business.

William Franklin -- Executive Vice President-US Operations and Shared Services

Thank you Jeff and I'll provide a few comments about our operational performance for the quarter where we once again delivered a very strong quarter. In the US, our volume grew by 4.3% when adjusted for all cat activity, which includes Hurricane Harvey last year and Hurricane's Florence and Michael this year. Our volume growth continues to be driven by organic growth and market wins within the insurance market and a continued expansion into the non-insurance markets. Organic growth in the salvage market continues to be driven by we believe an increase in total loss frequency as high repair costs are leading to a higher percentage of accidents resulting in an economic total loss. We continue to aggressively develop our non-insurance business, which include franchise and independent dealers, finance companies and leasing companies, fleets, charities, municipalities, equipment dealers and wholesalers. The growth in volume was spread broadly across multiple seller segments. Volume from dealers was up 29%, finance companies 11%, wholesalers 54%, rental car companies 30%, and fleet and industrial equipment up 77%.

The only segments in which we experienced declines were charities and municipalities as we intentionally restricted our sales and marketing activities in these low profit segments. We have successfully grown our non-insurance volume as we develop better systems integration into fleet, bank and dealership operating systems, developed a more focused internal programs targeting the specific operational needs of individual segments as we continue to increase the returns that we're delivering to our non-insurance sellers. In total, our US non-insurance volume grew by 14% and 44% over the same quarter last year and the same quarter two years ago. However, excluding charities and municipalities, our non-insurance volume grew by 30% and 116% for the same quarters. In total, non-insurance business represented approximately 25% of our total US volume.

In the US, our service revenue per car, excluding the impact of Harvey on a quarter basis was up almost 6%. The increase in revenue per car was due primarily to higher ASPs, which grew by 12.7% as more than half of our total revenue per car is tied to the ultimate selling price of the vehicle. The increase in ASPs were driven by a number of factors: a 4.5% increase in the value of used cars as measured by the Manheim Index, which in October reached the 140 mark for the first time, a 15.2% increase in the value of crushed car bodies, beneficial mix of cars sold as non-insurance cars of the powersports vehicles are generally run and drive and yield a higher selling price, the increase of our digital marketing activity, and the continuing trend of insurance companies totaling newer, more valuable and less severely damaged vehicles.

We continue to expand our remarketing activities and to enhance our auction platform. On a quarter-over basis, the number of unique bidders was up almost 25% and the increase the number of bids received per lot was up almost 6%. Our outreach to international buyers continues. Our US website is now translated into seven languages. These languages are native to 135 countries. We now sell cars from our US yards to 147 countries. Despite the headwinds caused by the stronger dollar, buying activity from international buyers on a quarter-over basis increased. Total sales to international buyers was over 23%. When we include all export activity including buyers with domestic addresses who only export, our international market represents over 34% of all (ph) units sold. We believe these activities contributed to the record US ASPs and auction return percentages.

Now turning to our international operations. Our revenue grew from $68 million to $90.2 million or 32.5%. International service revenues grew from $42.7 million to $51.2 million or 19.9%. Our purchase car revenue grew from $25.3 million to $38.9 million or 53.9%. EBIT grew from $17.9 million to $21.1 million or 18% as purchase car revenue inherently yields a lower margin per vehicle. Volume grew by 14.3% driven primarily by growth in the UK, Germany, and Brazil. Jeff and Jay will provide far more detailed comments on our progress in Germany later in the call.

Globally, we are seeing rising diesel fuel prices, labor and health insurance cost. Nevertheless, when adjusting for the abnormal costs associated with Hurricane Harvey last year and Hurricane's Florence and Michael this year, our average cost to process each car grew by only 2.7% in the US and 3.5% worldwide over the same quarter last year. In total, the incremental costs this quarter associated with Hurricane's Florence and Michael was approximately $4.3 million. To provide the CAT support our insurance customers come to expect, we must make financial commitments early in the CAT process. Accordingly, before the storm hits, we obtain and we stage equipment and people. We obtain additional land capacity and we arrange for additional sub-haul (ph) capacity. We do this on a scale appropriate for the worst possible scenario. For hurricane's Florence and Michael, we relocated 180 people, 75 loaders (ph), we arranged for an additional 500 trucks for sub-haul capacity and we committed to 17 new temporary property leases. We'd like to acknowledge the outstanding work of our CAT teams and to reinforce Copart's continued commitment to supporting our insurance customers during all CAT activity. Our CAT adjusted inventory was up in the US, internationally and worldwide by 10.4%, 14.1% and 10.9% respectively.

The growth in US inventories suggest a continuation of a double-digit quarterly volume growth expectations. Accordingly, we remain extremely active in our yard expansion program to accommodate the growth and in support of our effort to provide permanent CAT capacity in CAT regions. During the last quarter, we entered into 21 land purchase and lease contracts. We closed on 11 contracts. In North America, we are currently engaged in 26 land development projects representing over 1,200 acres of capacity. That concludes my brief comments. Now we'll turn the call back over to our CEO, Jay Adair for further comment.

A. Jayson Adair -- Chief Executive Officer

Thank you, Will. Good morning again everyone. Before we discuss Germany, I'd like to give you an overview of the UK. We knew 15 years ago that we need to be a global business to win. We entered the UK in June of 2007 with an acquisition of a small company that had three locations called Century Salvage. Shortly after that, we purchased Universal Salvage giving us nine locations across the UK. Today, we have 15 locations allow us to pick up quickly and economically across the UK. To win, we knew we needed a network of locations. We grew the business organically by winning new business, by opening additional yards, and through some future acquisitions.

For those of you that have followed us over the years, you know that we used to act as principal on the vast majority of the insurance cars that we sold in the UK. At the beginning, we didn't have the track record in the UK that we obviously had in the US. So we were happy to buy cars and make money in the process. Over time, we simply showed the carriers the favorable spreads that we were generating on our trades and in doing that, they shifted to a consignment model instead of selling their vehicles to us. We do this because it is better to be on the side of our customers as a partner rather than as a vendor purchasing vehicles. Now, Copart UK is the number one place to go to buy a salvage vehicle in the UK, selling well over 300,000 units a year and generating the highest returns in the market.

To deliver on the Copart promise, in Germany, we have a network of yards, a marketplace, people, and the technology to deliver on that promise and I'm happy to say that we're there today in Germany. Because Will is focused on running the US, Jeff has been able to spend a lot of time working on Germany to get us to this point. So I'd like to turn it over to Jeff now to give you an update on the German operations and I'd like to thank all those that were involved in the last six months in Germany on making the success that we've seen happen for Copart. Jeff?

Jeffery Liaw -- Chief Financial Officer

Thanks, Jay. On the topic of Germany, Germany you've heard piecemeal from us of course over the years and as promised on the first quarter call, we wanted to take this opportunity to describe the opportunity and our status in greater detail. I'll start first with a description of the German industry more broadly. The German insurance market -- auto insurance market operates very differently from the UK and the US with respect to total loss claims. In the US for example, when you as a covered policyholder total your car, the insurance company effectively buys the car from you and what happens thereafter is invisible. As you know, the insurance company then consigns the car through Copart and keeps the proceeds of the auction.

In Germany by contrast, nearly every car in an accident, even a mangled one, is owner retained. So when an accident occurs, the insurance company estimates how much value the policyholder has lost by comparing the pre-accident value or PAV of the car with a post-accident residual value of the vehicle and pays the policyholder that loss of value. How does the insurance company assess that post-accident value? The carrier registers the car on multiple listing services. In effect, miniature auctions on which buyers bid for vehicles. The insurance company generally then chooses the highest bid from across all of these listing services to be the quote residual value from which the indemnity payment is calculated and then paid to the policyholder. The policyholder then has a 21-day option period to sell the vehicle to the listing service auction quote winner at the residual value just established, but there's a catch, these listing services are a really tough experience for the buyers themselves.

First, the buyers are obligated to honor their bids for a full 21 days after bidding tying up their capital. Second, the buyers have the obligation to buy the car, but the owner of the vehicle does not have an obligation to sell it to them creating a fairly severe adverse selection problem. And thirdly, perhaps most importantly, they will ultimately close on fewer than one in 10 vehicles on which they are the quote winning bidder on a listing service. That makes it impossible to plan their own dismantling and rebuilding business and of course, it further complicates tying up capital on cars you largely won't win. So the punch line is that buyers are constrained by their capital and how many vehicles they can bid on and given adverse selection, will bid depressed values for cars.

So who ultimately loses in this inefficient process? Insurance carriers are establishing their indemnity payments or their financial losses on claims based on what is an artificially depressed residual value. The cost is paid by them and ultimately by German policyholders who have to cover excess loss costs with their premiums.

We'll then turn our attention to Copart Germany's evolution. In 2012, recognizing that we needed to understand the market firsthand, we acquired Wreck Online Marketplace, one of the leading listing services in Germany. Then in 2016, we opened our first auction location in Germany in Bad Fallingbostel near Hanover. In our last earnings call, we talked about evolving our strategy in Germany as well. That evolution in short is as follows: we intend to pursue insurance company consignments in parallel with our efforts to purchase cars in our listing service. In the past, when we've entered new markets as Jay just described, in the UK for example in 2007 and in the charities business in the US, we have sometimes established our presence by buying cars first. We intend to move very quickly to build the infrastructure that advantages Copart in our more mature market, that includes the land that enables us to store cars efficiently, I'll talk more about land in a moment, trucks in a geographic footprint enables us to tow cars economically, and vehicle auction volume that attracts buyers and sellers alike.

In 2018 so far, we have announced our next six locations. That physical footprint is critical because it enables fast pickup across the entire country and a central capability in a competitive marketplace for cars. It enables cost efficient pickups. As you've heard us describe in the US in the past, every yard reduces towing costs and improves pickup times because every yard is closer to some of the cars than (ph) our current network would be. And lastly it's worth noting the importance of buyer convenience because the majority of the cars that we sell through Copart Germany auctions are purchased by foreign buyers outside of Germany. Having yards enables our buyers to accumulate vehicles and pick them up more efficiently in larger batches.

Regarding our progress beyond land, we are purchasing and selling vehicles in Germany at a meaningful positive spread at our Copart auction locations. Every car we buy and sell adds to our knowledge base and improves our ability to buy and sell the next subsequent car. Our intention is to run bi-weekly auctions at each of the sites we have announced with more to come. We're hiring staff for our yards as well as drivers for our trucking network. We use a combination of owned trucks and third-party sub-haulers to build out our logistics network. We've deployed our next generation IT system which we call COBALT (ph) in Germany as well.

Ultimately, we believe that the strategy we're pursuing in Germany is broadly applicable with some local refinements to the other large economies in Western Europe. We started with a buyer in Germany and let's finish there as well. For the first time in Germany, the Copart Germany model will deliver an actual certain auction process. A buyer who bids on a car and provides the highest bid on a vehicle will ultimately own the car. We, for the buyers benefit, now have the logistics benefit of multiple locations at which a buyer can store cars until they officially pick them up.

As a general practice over the past 25 years or so, we tend to tell you what we've done after the fact as opposed to promising it in advance. We'll continue to honor that approach in general, but we recognize that Germany and Western Europe are substantial enough opportunities to warrant a more substantial check in as we have provided today. We look forward to growing our business in Germany for many years to come. We're energized by the progress and momentum in Germany thus far and are excited by the size of the opportunities ahead of us. With that, we'll turn it back to the moderator for Q&A.

Questions and Answers:

Operator

Thank you very much. (Operator Instructions) Our first question will come from Craig Kennison, Baird.

Craig R. Kennison -- Baird -- Analyst

Good morning. Thanks for taking my question and thanks for the terrific summary on Germany. I had a question on the consumer experience in Germany. How does a German consumer find out about Copart or your listing service and is there anything you need to do to promote the service in ways that you don't have to promote it in the US?

Jeffery Liaw -- Chief Financial Officer

The consumer, Craig, I would argue is a participant today in the total loss process as you heard us just describe, the insurance carrier provides them with the indemnification payment for their loss, then hands them the details of an offer provided by a third-party. It's then the consumer's responsibility to orchestrate that subsequent sale of the car to that winning bidder from the listing service. So if anything in Germany today, the consumer is arguably too involved in that process. You can imagine they are trying to orchestrate the sale of a one-off vehicle from your home or from a repair shop to an individual you have never known in the past and will never see again in the future who may in fact even be picking up a car from a foreign country is a complicated endeavor. I don't think that Copart's branding among consumers is essential in Germany. I think building our network and building our credibility with insurance companies and certainly with buyers which I think you know we already have tremendous credibility with the international buyer base. That's much more important than winning the hearts and minds of the consumers individually.

Craig R. Kennison -- Baird -- Analyst

So if you think of all of the totaled cars in Germany, to what extent are you getting a listing opportunity on those cars? What's your market share of listing opportunities if you will in Germany?

Jeffery Liaw -- Chief Financial Officer

That's frankly hard to quantify, Craig, in part because for every car that does experience a severe accident like that, carriers generally speaking will list the car on multiple services, WOM or Wreck Online Marketplace, the business I described a few moments ago is certainly one of the handful of clear market leaders. So, our market share position I described is strong without being able to quantify precisely.

Craig R. Kennison -- Baird -- Analyst

And then the final question on Germany here, just obviously you are purchasing a higher percentage of cars there at a more or less kick-start liquidity. Can you give us a feel for the economics of that and how quickly you can turn a car. So if you invest, you know, a few thousand dollars in a car, how quickly does that car turn over? And thank you.

Jeffery Liaw -- Chief Financial Officer

It turns over reasonably quickly. The timing process is certainly not more complicated than it is in the US for example so the turnover isn't a challenge per se. The economics I think the punch line is that we have been able to buy the cars on these listing services, subject to the same adverse selection problems I just described for the marketplace broadly, then turn and sell them at Copart Germany and earn positive profits in the process of doing so. I think that the sample size at this point is probably not large enough to provide a very detailed unit economic P&L picture, but the punch line is we are able to make money as evidence then that the current listing service model is inefficient and costing carriers and policyholders more than it should.

Craig R. Kennison -- Baird -- Analyst

Thanks for the detailed overview.

Jeffery Liaw -- Chief Financial Officer

Thanks, Craig.

Operator

Thank you very much. Our next question will come from Bob Labick, CJS Securities.

Lee Jagoda for Bob. Good morning.

A. Jayson Adair -- Chief Executive Officer

Good morning.

Operator

So just following up on Germany, I take it you guys have about 11 new yards in Germany today. What do you think you need to be fully built out in Germany and how long do you think that, that process could take before we see multiple insurers actually buy in?

William Franklin -- Executive Vice President-US Operations and Shared Services

Okay, well we've announced to date eight locations correct?

Jeffery Liaw -- Chief Financial Officer

Seven.

William Franklin -- Executive Vice President-US Operations and Shared Services

Seven, OK. We've announced seven locations and we will end up announcing 12 by the time we're done. I would argue we've got enough of a network now we can handle cars. So we've got more than enough capacity. We can pick vehicles up quickly and we're not picking them up economically yet, but we'll be there very soon, I'd say within 90 days, we'll have the economics right that we'll be happy with what is costing to get a vehicle picked up. The next step is the marketplace, so we're -- by acquiring all these vehicles as Jeff said, we're getting a strong feel for what they're worth so we can be even more competitive buying more vehicles and making a spread on those vehicles. So that will improve, but what's more important than really buying vehicles and making a spread is that we're creating a marketplace where our customers when they come to Copart, they're guaranteed to get that car.

This isn't about going on a platform and one out of 100 times I submit a bid, I end up getting the car because most of the time I'm out-bid, I don't know it, and then when I am high bidder, the insured decides not to sell it to me because they flip it to the dealer or to somebody else, so through adverse selection. So this is a sure thing, guaranteed that when I bid on Copart, I will get the car. All of our auctions or I should say the majority of the cars that we're selling at auction are not on reserve. So there are no reserve auctions or if you bid, you own it. So that has been our focus, our focus has not been on getting insurance companies to come onboard yet, because it's about building the network, it's about building the logistics, it's about having the marketplace where buyers are coming every single day and finding product and buying that product and by doing all that through our people and our technology, we'll then go to insurance companies and show them our spreads, very similar to what I said in my opening comments that we're going to show them the spreads we're making and say why don't you just processing it this way instead of doing it through the platforms.

Additionally, as Jeff said and this is one of the biggest parts to me, it's not only that we think there's money being left on the table due to an inefficient marketplace and that's why they list -- literally there are major insurers that list on all three of the major platforms because they'll get different bids through the platforms. So that piece is important, but to me what's more important is that you're -- in Germany, you are telling the insurer that your vehicle is worth EUR30,000 prior to the accident, it's now worth EUR10,000 after the accident, you are giving him a check for EUR20,000 and telling them to dispose of the vehicle to a buyer that they have no idea what the process is. So, not only do they have the option of selling to that buyer, but then they've got someone that is at the shop or maybe the vehicle is at their home and they've got an adjuster that's talking to them and they are an appraiser and they are working all these to figure out who should I sell the vehicle to in the end and have to deal with that. So, it clearly is our belief that if they are given a check for EUR30,000 and the vehicle is picked up and disposed of and they never have to deal with it, it's a far superior customer experience from the insurance company's perspective and from the insured's perspective.

Operator

That makes all the sense in the world. Just so I'm clear though, how many if any insurance companies are currently participating on your platform today and as outsiders what are the next milestones we should be looking for?

William Franklin -- Executive Vice President-US Operations and Shared Services

Yes, we have a few, I'd say three maybe four customers that are starting to utilize the website now to sell vehicles, but it's not in any way material yet, they are more wanting to try some recovered theft vehicles, some hail damage vehicles et cetera to dispose those vehicles. There's a transformation that has to take place where they're not just dealing with inventory that they're stuck with in the sense of recovered theft or hail damage, but that they actually say that this is the process going forward and again I can't -- I really can't state it enough, Jeff and I and the rest of the team have been making a number of trips to Germany in the last six months and I can't tell you how confident I am that we're going to see insurers that will switch to the process. It's just -- the numbers don't lie. When you look at the returns we're getting on vehicles and you see the amount of times that the insured sells the vehicles somewhere other than the platform, those two combined plus the experience for the customer I think you're going to see in the next six months some customers switching their process and converting to Copart and the Copart model.

Operator

Good, that sounds great. Thank you very much for the color.

William Franklin -- Executive Vice President-US Operations and Shared Services

You're welcome.

Operator

Thank you very much. Our next question will come from Stephanie Benjamin of SunTrust.

Stephanie Benjamin -- SunTrust -- Analyst

Hi. Good afternoon. Thank you for the question. I just kind of wanted to go back in again on Germany and kind of thinking through here obviously there's a lot that's been done in the last year from building infrastructure, the IT system and just what I'm assuming a lot of investments in the initiative. So just kind of we think going forward should we be expecting significantly more investments or are we this is kind of the run rate and to kind of look at it this point going forward or just kind of trying to get a gauge on where we are from just an investment standpoint. And then lastly, I just kind of wanted to follow up on the last question in just thinking about if you have received any push back from insurance companies or any reason so far where maybe they're just not getting it or why they wouldn't immediately switch just considering the returns you can show them. That would be great. Thanks, again.

Jeffery Liaw -- Chief Financial Officer

Thanks, Stephanie. I think as you know, we tend not to provide any forward-looking guidance on any aspect of our P&L, revenue, cost or otherwise, but in short I think you can tell from this description today that we have made real strides in Germany, but still have meaningful growth aspirations from here as well. So certainly our hope is that we are investing much more capital because that's a reflection then of ongoing growth in the business. I don't think we're prepared to quantify that for you in any way quick (ph). As for your second question about any resistance from the insurance carriers, I don't think there is a lack of willingness or interest. I think the point is that a model like the one in Germany has evolved for a reason and there are tax and regulatory and commercial practices that have been long-standing in Germany. This is a radically different model, I think very clearly superior, but it certainly will take time to prove to them as Jay was describing to you the principal car purchase path that the economics are overwhelming and so there is no resistance per se, I'd say strong interest, strong curiosity in our model.

Stephanie Benjamin -- SunTrust -- Analyst

Great, I appreciate the color. Thanks again.

Operator

Thank you very much. Our next question will come from Daniel Imbro, Stephens Inc.

Daniel Imbro -- Stephens Inc. -- Analyst

Hey, thanks. Good morning. Thanks for taking my questions. I wanted to follow-up -- a quick one on Germany. You know I think you guys mentioned there are three major platforms in the German market, but given the higher returns that you're generating with your model, do any of the incumbent players have the ability or desire to change strategy as they see you guys succeeding in that market?

Jeffery Liaw -- Chief Financial Officer

We haven't seen any indication that they are -- that they have the desire and I think we have a fairly strong reason (ph) they wouldn't have the ability regardless. So recall that a majority of the buyers at Copart Germany today are international. So that's on the backs of Copart's global reputation on the back of Copart's already established international buyer base. If somebody tried to replicate that from scratch solely for the purposes of having a more competitive listing service in Germany, I think that would be a tall order. So no, there's no indication that they have endeavored to do so and some skepticism anyway on our part that they could.

Daniel Imbro -- Stephens Inc. -- Analyst

Okay, and then staying over there in Europe, with Brexit and the UK right now, can you maybe just talk through how you guys think different outcomes could play out in your business or for one, what percentage of the UK business is exported to Continental Europe and how a potential Brexit outcome could change or disrupt your UK operations?

Jeffery Liaw -- Chief Financial Officer

I think you saw some disruption a couple of years ago and a year ago with wild currency fluctuations. That certainly affects our business as you know in multiple ways and so when the pound is weaker, the earnings are reflected in our P&L at a much lower US dollar rate. That said, I think Brexit clearly remains very much a TBD as the portion of cars are sold outside the UK, I don't think we disclosed that number, but it is meaningful. So there are cars in the UK that go to other places within Europe and practically beyond Europe as well. We expect trade to continue of those cars and precisely at what tariffs and under what regime will ultimately emerge I think remains to be seen.

Daniel Imbro -- Stephens Inc. -- Analyst

Thank you guys, and then one last one, moving back to the US business, we seem to have been US salvage industry growth slowing a little bit. And part of that is noise from the cat events, but even so shaking out the mid-single digit range, what are you guys seeing in the industry today and has your volume outlook that you previously indicated of kind of high-single digit industry growth, has that changed at all? Thanks.

A. Jayson Adair -- Chief Executive Officer

Not really. It may have moderated slightly but given the difficulty in getting land, we really haven't reduced our efforts and expansion in any meaningful manner. And these trends -- we try not to react for quarterly changes in trends. We think that in the long run that we're going to see increases in total loss frequency just because of all the dynamics that you all heard about pre and post repair inspections and scans or complex cars and younger cars, all that intuitively leads us to the conclusion that total loss frequency will continue to grow.

Daniel Imbro -- Stephens Inc. -- Analyst

Thanks, best of luck.

Operator

Thank you. Our next question will come from Chris Bottiglieri, Wolfe Research.

Chris Bottiglieri -- Wolfe Research -- Analyst

Hi, thanks for taking the questions. Just first one to the -- global inventory ex-cat was up 10%, or ex-hurricanes when you call that way, and volume was up 4%, I guess how many points of that inventory growth was from international and then like what else would you attribute the accelerated (ph) exit rate from?

A. Jayson Adair -- Chief Executive Officer

I think we gave that. I mean international was up 14% and US was up 10.4%. So there was (technical difficulty) internationally.

Chris Bottiglieri -- Wolfe Research -- Analyst

Okay and why such strong growth in inventory growth in the US then looking forward, what do you see that's driving that?

A. Jayson Adair -- Chief Executive Officer

We don't predict. We can look backwards and say that our average volume growth rate over the last 17 quarters has been 10% and while there will be natural fluctuations from quarter-to-quarter, we really don't see influences change significantly that have driven that thus far. So we think it's going to be in that range.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you. Okay. I'm trying to understand the European market all a bit matter both on the supply side and the demand side. At this point, sourcing for the insurers, is the super majority of your purchases coming from listing services and then what would the mix like of your own wreck listing service versus the third-party ones?

Jeffery Liaw -- Chief Financial Officer

(multiple speakers) I mean you heard Jay describe a handful of customers who are consigning cars to us but still the strong majority of the cars sold in Copart Germany today are cars purchased on our listing service.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you, OK, and then demand side, can you talk about the customer mix, how that might differ from what you see in the US, can you give us a sense of -- I don't think there is a very big salvage part industry in Europe yet today, so could you maybe talk about how the buyers are different and kind of how you see it evolving if you do to remain (ph) in this market?

Jeffery Liaw -- Chief Financial Officer

I think the buyers are ultimately somewhat similar because they are from outside of Germany, so some of the countries that are meaningful buyers even in Copart US cars today have become the buyers of Copart Germany vehicles as well. They are no doubt dismantling a portion of the cars for parts and are no doubt rebuilding a good number of them to be put back on the road as well.

Chris Bottiglieri -- Wolfe Research -- Analyst

Okay, thanks for the help.

Operator

Thank you very much. Our next question will come from Gary Prestopino of Barrington Research.

Gary Frank Prestopino -- Barrington Research -- Analyst

Good morning everyone. Well, you cited various categories of growth in the non-insurance side. I got, it was dealers were up 29%, could you give me the other segments and the growth that you saw there?

A. Jayson Adair -- Chief Executive Officer

(multiple speakers) Sure, finance companies which includes banks and leasing companies was up 11%, wholesalers is up 54%, rental car companies was up 30%, and industrial equipment companies were up 77%.

Gary Frank Prestopino -- Barrington Research -- Analyst

Okay. Thank you. And then 25% of your total US volume in this quarter was non-insurance. What was the percentage last year? Do you have that handy?

A. Jayson Adair -- Chief Executive Officer

I do. It was a little over 22%.

Gary Frank Prestopino -- Barrington Research -- Analyst

Okay, and then just with these non-insurance cars, I would assume that they get sold a hell of a lot faster than the salvage vehicles, you don't have to clear title and settle with an insurance company on that. Does that -- as these grow as a percentage of your US cars sold, does that kind of somewhat distort your inventory growth in a sense that these cars are flushing out a lot quicker versus the salvage cars?

A. Jayson Adair -- Chief Executive Officer

It can, so each segment that we talk about has its own profiles, its own characteristics. So you might make assumptions about a quicker cycle time overall. Some segments are actually a slower cycle time, but in general, you're right it has a -- as a group a quicker cycle time and therefore increases the velocity of our yards, improves the utility of our land.

Gary Frank Prestopino -- Barrington Research -- Analyst

Okay and then just so I make sure I'm understanding Germany. Germany it's an owner retained. You're actually still going to the owner and buying the car, correct? You are not -- the insurance company is not retaining the car in what you're doing?

A. Jayson Adair -- Chief Executive Officer

Correct.

Gary Frank Prestopino -- Barrington Research -- Analyst

All right, do you and I know, Jay, mentioned that, obviously you're going to try and employ the same strategy that you used in the UK to move from a principle (ph) agency over time but are there any UK insurers that are writing in Germany right now that could maybe be you know take the lead in this and kind of start nudging the German insurance companies toward going to this contingent basis?

A. Jayson Adair -- Chief Executive Officer

Yes, Gary, we're just in the process right now of preparing the data to share it. So our approach has been very simple. We felt without a marketplace and without a network, we couldn't offer an insurer a vehicle in Munich our service and then have to tow it six hours north up to Hanover. So we've got the network now, we've got results of the auctions that we can share and it's really about sharing that data in the next 90 days and one of the most compelling parts of this to me is yes, we're making a spread and you can see that and that's great, but one of the most compelling parts is the fact that when they are high bidder on one of the platforms -- when a buyer is high bidder on one of the platforms and that is the high bidder that is given to the insured, that the majority of the time the insured doesn't sell at him.

So there's a whole secondary auction that's taking place and the platform writes is the number that the insurance company uses. So that's the number that they're saying OK, your car is worth 10 grand, it was 30 before the accident. Here's a check for 20 and this buyer will buy it off you and then the majority of the time, the insured does not sell it to that buyer. Instead they go out into the secondary market through people that work at the BMW dealership that's doing the repair, through other sources they're going out because (technical difficulty) came out to them and it's not too hard in Germany, we figured that out -- it's not too hard in Germany to figure out where a damage -- obviously in the US, I'll give the example, it's not too hard to figure out where a damaged Ferrari is in Dallas, there's not that many dealerships. When you get into Germany, it's not that hard to figure out where a damaged BMW or Mercedes is in Munich. And so you can make phone calls and talk to them or you even have a route where you just walk into the dealerships and you look at the salvage and they put you in touch with the insureds (ph) and you're buying that product off of them for more than the platform bid.

So this is really about showing the insurance company, it's not only a better service for the insured, but it's about showing them that there is this whole secondary auction, it's an inefficient marketplace and the biggest frustration we talk to our buyers, why do they love Copart so much, the biggest frustration is they bid on the platforms and the majority of the time, they don't get the car. They've been on Copart, 100% of the time they get the car and that allows a buyer to know exactly what they're going to repair, if they need parts, they've got the parts, if they're going to do a rebuild, they've got the vehicle for rebuild and then they can store it at Copart for the next two weeks while they build a run and send a truck out to pick nine cars up and haul them back to Poland. So that's really -- the benefits there are really obvious and it's just about us in the next 90 days (ph) articulating that now to customers.

Gary Frank Prestopino -- Barrington Research -- Analyst

Thank you very much.

A. Jayson Adair -- Chief Executive Officer

You're welcome.

Operator

(Operator Instructions) Our next question will come from James Albertine, Consumer Edge.

James Albertine -- Consumer Edge -- Analyst

Thank you so much and good morning to everybody. Great details on Germany, a lot of questions obviously already and I know you don't give guidance. So I wanted to ask sort of a rearward-looking question here a little bit. Are you, can you tell us rather if you're on plan or if you're slightly ahead of plan with respect to your -- what you had budgeted for growth in Germany and the reason I ask, given the radical change you're bringing to the market and the tax and regulatory setup, I want to understand what the impetus may have been whether it's consolidation of buyers or sellers or what have you that may have accelerated the investment there in Germany and if we can think about the rest of Europe potentially being a little bit faster as that market consolidates over time?

A. Jayson Adair -- Chief Executive Officer

Okay, well I think the big change is that we have spent the last two years trying to understand the marketplace with a single location and you know, it's a learning process, the first part I'd say, you've got to learn how the market works and there's been a lot of us trying to figure out why is the insured, why is our buyer on our platform the high bidder and they don't get the car. And then you eventually realize as you reach out and make phone calls and talk to people, you find out and you kind of decipher how the marketplace works and that's how we've now come to the conclusion that there's a secondary auction that takes place, a bunch of other facts that we know about the marketplace and I would say that it's a big investment in time and it's a big investment in dollars and we wanted to make sure that we knew that our model in our minds would work and we came to that conclusion this year and that's why we opened up so many locations to build a network of facilities where we can pick cars up quickly, store them, liquidate them at auction and replicate that process over and over and over.

So it was really about being prudent in our approach upfront and learning and we've spent the last two years doing that and now we're in a very quick pace to accelerate the market in terms of units going through auction and accelerate the market in terms of getting clients to convert now to the Copart model. And this is simple math, right. They're going to convert and the insured is going to be happier that they don't have to deal with a buyer coming in at eight o'clock at night to pick the vehicle up and so that's a win. They're going to see net promoter score increases from a customer service standpoint and they're going to see more money in their pocket because they are not losing the vehicle in the secondary auction. So this should benefit the insured and benefit the insurance company and our research so far proves that to be the case. Do you want to add to that?

James Albertine -- Consumer Edge -- Analyst

Maybe as a quick follow-up then Jay, if I may. Given the progress you've made, the learnings, and the breakthrough you've had or seems that you're having in Germany, does that lower the degree of difficulty to go laterally kind of across Europe or will you have to effectively start over in a similar way as you did in Germany if you were to shift into other markets and then if I can ask one of Jeff, you know you talked about the economics and you said it's profitable, look your ROIC over time, I would guess this is a very compelling opportunity economically, but from a modeling perspective and there's no guidance here, but wanted to get a sense -- this must be coming on as sort of dilutive to your corporate EBITDA margins near-term I would imagine. Is that a fair assessment while you're maturing in that market?

Jeffery Liaw -- Chief Financial Officer

So, let me tackle those questions individually. First is your question as to the rest of Western Europe. It's certainly the case that we are building the muscle memory now to understand how to roll out in a market with some level nuances and its own refinements. Certainly our ability to succeed in Germany will inform our process in other countries. So there will be additional work to be done. So it's not simply replicating the next morning in Spain or in France or otherwise, but I think, we will have enhanced our capabilities and enhanced our reputation and the friction should be lower for the next iterations of this approach.

As for the probability of the model, I'd first note that, given the principal nature of it, I suppose, if you wanted to literally talk about the math on a -- because they are principal cars, they are clearly dilutive to the margin rate both on the gross line and the operating profit line. As for how the balance of it will evolve over time, I think we'll just ask you to be patient and see in future quarters. We're not in a position to provide a forecast.

James Albertine -- Consumer Edge -- Analyst

No, understood and appreciate it and best of luck.

Jeffery Liaw -- Chief Financial Officer

Thank you.

Operator

Thank you. Our final question will come from Bret Jordan, Jefferies.

Bret Jordan -- Jefferies -- Analyst

Hey, good morning guys.

A. Jayson Adair -- Chief Executive Officer

Good morning.

Bret Jordan -- Jefferies -- Analyst

A quick -- I might've missed this. Did you size the German market? How many cars total there annually?

Jeffery Liaw -- Chief Financial Officer

We haven't. We characterize it as substantially larger than the UK market. For example, just by comparison, I think if you look at the metrics whether it's population, GDP, per capita GDP et cetera I think we believe it's meaningfully larger than the UK and we view the Western European market collectively as being similar or larger (ph) than the US.

Bret Jordan -- Jefferies -- Analyst

Okay, great. And then a question on the non-insurance US vehicles. Do a higher percentage of those go to export, in the sense that there's less concern around a condition report, what is essentially an old car, is your export mix shifting as that mix shifts?

A. Jayson Adair -- Chief Executive Officer

Certainly, some are appropriate for our export market, but I would say that, without knowing exactly because I haven't looked it up, I wouldn't (ph) think it'd be too materially different than our normalized 4% (ph). So 35% is probably an appropriate expectation.

Jeffery Liaw -- Chief Financial Officer

Right, directionally probably a little bit higher simply because the scrapped cars are sold in state. So a local car that's going to be melted down pretty much right away will be sold within a pretty narrow radius of the location of the yard and so simply by virtue, dealer cars generally not being melted down, there's probably a higher mix that go export, but I don't think the difference will be dramatic.

Bret Jordan -- Jefferies -- Analyst

Okay great. Thank you.

A. Jayson Adair -- Chief Executive Officer

Thank you.

Operator

Thank you very much. Ladies and gentlemen, at this time we have no further questions in the queue. So I'd like to turn the conference back over to management for any closing remarks.

A. Jayson Adair -- Chief Executive Officer

All right, thanks Chantelle. Thank you everyone for attending the first quarter call for Copart and we look forward to reporting on next year and wish you all a Happy Thanksgiving.

Operator

Thank you very much. Ladies and gentlemen at this time, this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.

Duration: 58 minutes

Call participants:

A. Jayson Adair -- Chief Executive Officer

Jeffery Liaw -- Chief Financial Officer

William Franklin -- Executive Vice President-US Operations and Shared Services

Craig R. Kennison -- Baird -- Analyst

Stephanie Benjamin -- SunTrust -- Analyst

Daniel Imbro -- Stephens Inc. -- Analyst

Chris Bottiglieri -- Wolfe Research -- Analyst

Gary Frank Prestopino -- Barrington Research -- Analyst

James Albertine -- Consumer Edge -- Analyst

Bret Jordan -- Jefferies -- Analyst

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